According to Webster's New
Universal Unabridged Dictionary published in 1983 the second
definition of "inflation" after "the act of inflating or the
condition of being inflated" is:
"An increase in the amount
of currency in circulation, resulting in a relatively sharp and
sudden fall in its value and rise in prices: it may be caused by
an increase in the volume of paper money issued or of gold
mined, or a relative increase in expenditures as when the supply
of goods fails to meet the demand.
includes some of the basic economics of inflation and would seem to
indicate that inflation is not defined as the increase in prices but
as the increase in the supply of money that causes the increase in
prices i.e. inflation is a cause rather than an effect.
Gold is now
the currency of choice for at least the next 5 years! (its a
currency where the supply is limited and tangable unlike paper) no
currency on the planet is backed by anything. All currencies are
increasing in supply except gold!
Is gold a currency, a commodity, or a store of value?
The answer is all three, but gold bullion is primarily a currency
and a store of value and is a hedge against fiat paper money and
inflation. As an economic consultant in 1966 Alan Greenspan wrote:
"In the absence of the gold standard, there is no way to protect
savings from confiscation through inflation. Gold stands in the way
of this insidious process."
At Royal Bank we trade gold bullion off our foreign exchange desks
rather than our commodity desks because that's what it's is -- a
As J.P. Morgan said in 1913: "Gold is money and nothing more."
It was Alan Greenspan again who said in a 1999 testimony before the
U.S. House Banking Committee that "gold represents the ultimate form
of payment in the world."
Gold bullion is the only currency worldwide which is freely tradable
and which is unencumbered by vast quantities of sovereign debt and
Gold bullion is the one investment and long-term store of value
which cannot be adversely impacted by corrupt corporate management
or incompetent politicians -- each of which are in ample supply on a
As a currency and a store of value gold has stood the test of many
At the current level of about $625 per ounce, gold has risen about
250 percent over the last five years.
Nevertheless, I believe gold bullion is now in the very early stages
of a long-term secular bull market which will carry it to much
higher levels over the coming decade.